Vietnam's largest banks have promised to respect the official interest rate limit on dong deposits, prompting anxiety among small banks about their future.

They are afraid they will not be able to compete with major lenders.

The 14 percent cap on dong deposits had been introduced months earlier, but the central bank said it was breached by almost all commercial lenders in the country.

As a result, the State Bank of Vietnam took a strong move last week, saying bank managers will be strictly punished if the violations do not stop.

Twelve major lenders in the country, which together hold a 80 percent market share, have reached an agreement to follow the central bank's instructions.

But for smaller banks, it would be a tough task.

A bank executive in Hanoi told Thanh Nien his bank would not be able to compete with bigger banks in attracting dong deposits. Once the 14 percent cap is in place, retaining current clients will be a tough task, let alone attracting more deposits, he said.

The central bank has promised to help commercial lenders improve their liquidity through refinancing but nothing has happened, the executive said. "Small lenders will find it hard to survive if they can't attract more funds or improve their liquidity," he said.

Nguyen Duc Vinh, general director of Techcombank, said while small lenders account for a small market share, they play an important role in bringing down interest rates. One of them breaks the cap and others would just follow suit, causing chaos in the market again, Vinh said.

A manager at another large bank said his bank has nothing to worry about playing by the rules.

However, he feared that if smaller banks can no longer offer high interest rates to compete with others, they would face a liquidity crisis.

Truong Van Phuoc, general director of Eximbank, said in the long run the central bank needs to help small lenders solve their liquidity problems so that they don't have to break any interest rate limit.

The central bank is trying to lower borrowing costs for businesses. Several major lenders, including BIDV, Vietcombank and VietinBank, have lowered dong lending rates for businesses and manufacturers to 17 percent, compared to highs of 25 percent several months ago.